THE LAW

ONTARIO’S PROTECTIONIST PANTOMIME

“BUY ONTARIO” SCHEME TRIES TO MANAGE FORCES BEYOND PROVINCE’S CONTROL

On March 3, 2022, Ontario’s Bill 84, entitled an act to enact two acts and amend various other acts, received royal assent after being rushed through the provincial legislature in just 10 days. Bill 84 creates the new Building Ontario Business Initiative Act, a one-page statute referred to by the government as “BOBI”, which will require Ontario public institutions to apply preferential treatment, as mandated by future provincial cabinet regulations, to Ontario companies in future public sector contract awards.

Based on the government’s announcements, the underlying premise of BOBI is that high wages, and the regulatory burden imposed by provincial regulations, make Ontario businesses uncompetitive when bidding for Ontario public sector contracts against suppliers from other jurisdictions. According to the government, BOBI would mandate public institutions to pay more for Ontario products and services to subsidize the higher costs associated with, for example, fair wages, environmental disposal fees, and workplace safety standards. These broadly accepted areas of provincial regulation have now been targeted by the provincial government as a problem that needs to be solved. Not by cutting taxes and streamlining regulations to make them less costly and complicated, but by creating more complex regulations that interfere with public sector contract awards.

The Ontario government states that the new scheme “will apply to the province’s overall procurements, which amount to $29 billion in goods and services annually across all public sector organizations.” This means that a massive amount of public sector procurement contracts across Ontario could be exposed to complex protectionist preferences based on future regulations centrally mandated by the provincial cabinet.

BOBI flies in the face of well-established public procurement rules. Non-discrimination, a core global standard in public procurement, was recognized across Canada in the 1990s under the former Agreement on Internal Trade. That treaty was since replaced in 2017 with the Canadian Free Trade Agreement, which further aligns our government procurement rules with international anti-protectionist standards. Treaty enforcement mechanisms include the right of suppliers across Canada, and internationally for larger contracts under similar international treaties, to legally challenge the unlawful imposition of discriminatory barriers against open competition in public sector bidding. This means that contracts should be awarded to the best bid based on the merits of the competition, not based on the location of the bidder. This concept, referred to as “reciprocal non-discrimination”, is so core to the government procurement system that a breach of the principle is tantamount to a declaration of trade war against your trading partners.

While awarding to local suppliers may have appeal on a superficial level, jurisdictions across Canada and globally can and will retaliate by imposing their own protectionist policies against Ontario suppliers. It is unclear whether the Ontario government has done the protectionist math to figure out whether Ontario companies will end up better off or worse once the BOBI scheme instigates retaliatory measures in other jurisdictions that cost Ontario businesses existing customers and clients, as well as new ones, outside of Ontario. If that math was available, we could rationally assess whether triggering a trade war for “Team Ontario” would be worth the trouble for Ontario businesses and taxpayers. Unless the government has a rational business case to support it, BOBI is nothing more than superficial protectionist theatre that appeals to emotion over reason. This is never the basis for sound public policy.

Once Ontario’s misguided local preference train starts rolling, it could derail the entire public procurement system and cause collateral damage across the entire economy. In addition to triggering sanctions against Ontario businesses operating in other jurisdictions, Ontario’s BOBI plan would encourage Ontario municipal politicians, who already face significant populist pressure to favour local suppliers, to follow suit and start applying protectionist measures along municipal lines. Ontario businesses, especially small- and medium-sized local businesses, could quickly find themselves in the crossfire of local trade wars, encircled by protectionist barriers each time they attempt to win work outside their local city limits.

In conclusion, attempting to manage large supply chain forces that are beyond the reach and control of central planners, or politically tinkering with a complex government procurement system, is a bad idea. If the government wants to make Ontario workers and businesses more competitive, employee and business tax cuts and streamlined regulations would be a far more effective and equitable means of doing so when compared to protectionist schemes designed to benefit specially selected suppliers at the expense of everyone else. SP

Paul Emanuelli is the general counsel of The Procurement Office and can be reached at paul.emanuelli@ procurementoffice. com.

“While awarding to local suppliers may have appeal on a superficial level, jurisdictions across Canada and globally can and will retaliate.”

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